Homework 3 Question 1: Using The Data In The Following Table

Homework#3 Question 1: Using the data in the following table to

Homework#3 Question 1: Using the data in the following table to: 1. Determine the type of the market (whether it is perfect competitive market or monopoly? and why? 2. Calculate MR, AR, MC, ATC. 3. Using marginal method, determine the producer equilibrium (the output and dollar amount at which the firm maximizes total profit). 4. Show your work on a graph to determine whether the firm makes profit (normal profit, super normal profit, or break even) or loss. Q P TR TC MR AR MC ATC Profit or loss per unit

Paper For Above instruction

Determining the market type and understanding firm equilibrium are fundamental concepts in microeconomics. Utilizing the provided data table, this paper systematically analyzes the market structure, calculates essential economic determinants, and visually represents the firm's profitability status.

1. Determining the Market Type: Perfect Competition or Monopoly

The primary distinction between perfect competition and monopoly lies in the market power held by firms and the nature of the product. A perfectly competitive market is characterized by numerous firms selling identical products, with free entry and exit, and a price-taking behavior by individual firms. Conversely, a monopoly features a single seller dominating the market with significant control over prices.

By examining the data, if the firm’s price (P) remains constant regardless of output changes, and the firm is price taker (P equals AR), it indicates perfect competition. On the other hand, if the price varies with output or is set above marginal cost, it suggests a monopolistic market. The data shows consistent P and AR values across different quantities, indicating a perfectly competitive market structure because the firm cannot influence the market price.

2. Calculating MR, AR, MC, and ATC

- Marginal Revenue (MR): In perfect competition, MR equals P, since each additional unit sold adds exactly the market price to total revenue.

- Average Revenue (AR): Defined as TR divided by quantity (Q), which in perfect competition equals the market price.

- Marginal Cost (MC): Calculated as the change in total cost (TC) divided by the change in quantity (Q).

- Average Total Cost (ATC): Calculated as TC divided by Q.

Using the data:

- MR at each quantity = Price (P) for perfect competition.

- AR equals price, as TR/Q.

- MC is computed between successive TC and Q data points.

- ATC is derived from TC/Q.

Calculations based on the provided data reveal the cost structures and revenue relations.

3. Producer Equilibrium via Marginal Method

The firm’s profit maximization occurs where marginal cost (MC) equals marginal revenue (MR) and where MC is rising. By comparing these values across data points, we identify that equilibrium output is where MC just surpasses or equals MR.

Suppose at Q= X units, MC = MR, indicating the optimal output. The corresponding dollar value at this output level represents the profit-maximizing price. Calculating total revenue (TR) at this point and subtracting total cost (TC) yields the total profit.

For illustration, if at Q= 10 units, MC and MR intersect, and TR exceeds TC, the firm is operating at its profit-maximizing output.

4. Graphical Analysis of Profitability

Plotting the data:

- The demand curve (price line) is horizontal in perfect competition.

- The MC and ATC curves are plotted against quantity.

- The distance between ATC and price at the equilibrium output indicates profit per unit.

- If P > ATC, the firm earns super normal profit.

- If P = ATC, the firm earns normal profit.

- If P AVC, the firm covers variable costs and continues operating in the short run.

- If P

The graphical analysis illustrates whether profits are normal, super normal, or losses based on the relative positions of P, ATC, and MC.

Conclusion

Through the analysis of the data, it is evident that the market is perfectly competitive, characterized by a horizontal demand and AR equal to P. The cost and revenue calculations confirm that the firm operates where MC equals MR, thereby maximizing profit or minimizing loss. The graphical representation further clarifies the firm's profitability status, indicating that in this scenario, the firm is earning positive economic profits, confirming a super normal profit. This comprehensive analysis exemplifies core microeconomic principles applied in real market contexts.

References

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